Recent Insights from Dimensional -- You Know More About Investing Than You Think You Do, Principle #4

Dimensional offers six principles of?investing that can help as you reflect on the challenges and options of creating habits in life and investing. Over the next six weeks, Wealth Teams Alliance?will offer these principles in this newsletter for your consideration.?As always, please reach out to us if you have questions. ~~ Guy

You Know More About Investing Than YOu Think You Do, Principle # 4

Originally published September 21, 2023

No matter how familiar we are with investing, we’ve all navigated uncertainty, weighed risks and rewards, and made carefully considered tradeoff decisions. Just by being human, we’ve been compelled to tackle the central challenges of life—which also happen to be the central challenges of investing.

At Dimensional, we believe that having a good investment experience is about more than returns. What matters just as much is how someone feels along their financial journey. And that’s really what the investment business should be about: helping people live better, more fulfilling lives.

Investing better means living better. Not just because it can lead to having more money, but because many of the habits that serve us well as investors serve us well in life, too. By integrating our life and investment philosophies, we can see money as a tool that empowers our plans rather than as a goal in and of itself. Here are six principles that can help you in life and in investing.

Principle #4 -- Harness the Power of Compounding

Even the small, seemingly inconsequential decisions we make every day can have a big impact over time. Whether we’re trying to run a faster mile or master a foreign language, the best way to stay motivated is to keep reminding ourselves of the rewards that come from patience and commitment. Just a little bit of time every day can add up to a lot of progress.

The same is true of investing. A 10% return on your investment each year—similar to the stock market’s historical annualized average—would double your money every seven years. Having a lot of time can help an investor make up for not having a lot of money.

In both life and investing, compounding is a powerful force. You might say that the life equivalent of compound interest is wisdom. Learning from the past can help us make better decisions in the future, and those lessons build on one another over time.

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